What background checks do you need for car finance?

    white nissan being driven

    Buying a car, whether new or used, is a significant purchase. For most people in the UK, their car is their first or second most valuable financial asset! Given the upfront costs, many people buy their cars on car finance.

    Car finance is a credit agreement between you and a professional lender to cover the purchase of a vehicle. Before lending you the money, lenders will set out the loan terms and conduct several key checks to determine your eligibility. 

    These include reviewing your:

    ✅ Personal details for identity verification.

    ✅ Credit history to evaluate repayment reliability.

    ✅ Employment and income to ensure you can afford the payments.

    ✅ Current financial commitments to gauge overall affordability. 

    Learn about these checks in more detail to ensure you’re prepared to secure the finance terms you need. 

    Credit checks: The basis for car finance approval

    elderly couple going through paperwork
    Getting car finance is dependent on a credit check.

    When you apply for car finance, lenders will carry out credit checks on you to make sure you’re reliable and that you’ll be able to back the loan. There are two types of credit checks they’ll perform – soft credit checks and hard credit checks.

    Soft credit checks

    Soft credit checks, or soft inquiries, occur when you or a lender checks your credit report for pre-approval or informational purposes. These checks do not impact your credit score and are often used for:

    • Pre-qualification for loans or credit cards
    • Personal credit checks
    • Background checks by employers

    Hard credit checks

    Hard credit checks, or hard inquiries, are performed when you apply for new credit, such as a car loan. These checks can lower your credit score and remain on your credit report for up to two years. They are used to:

    • Assess your creditworthiness for new credit applications
    • Finalise loan approval processes

    What lenders look for in your credit history

    Lenders scrutinise your credit history to gauge your financial reliability and the risk of lending to you. Key aspects they consider include:

    Repayment habits and reliability

    Lenders examine your history of repaying loans and credit card balances. Consistent, on-time payments demonstrate reliability. At the same time, late payments or defaults indicate risk.

    Current debt levels and credit utilisation

    Your current debt levels and how much of your available credit you’re using, known as credit utilisation, are crucial factors. High levels of existing debt or high credit utilisation ratios may signal financial strain and increase perceived lending risk.

    Financial associations and public records

    Lenders also review financial associations, such as joint accounts or co-signed loans, which can impact your creditworthiness. Additionally, they check public records for any:

    🚨 Bankruptcies

    🚨 County Court Judgments (CCJs)

    🚨 Individual Voluntary Arrangements (IVAs)

    These all indicate severe financial issues and will seriously hamper any car finance application.

    Personal documentation and proof of identity

    driving license
    You’ll need to provide proof of identity when applying for car finance.

    Necessary documents for identity verification

    When applying for car finance, you must provide the necessary documents to be able to verify who you are. This typically means submitting a valid passport or driving licence. 

    Lenders will also often require proof of address, such as utility bills or bank statements. They’ll also want proof of income, like recent payslips or tax returns. 

    These documents help verify your identity, confirm your residency, and ensure you have a stable income, all of which are essential for securing car finance.

    The role of your driving licence in car finance

    Your driving licence is essential in the car finance application process. It’s a primary form of identification and proof that you’re legally allowed to drive. Lenders use your driving licence to verify your identity and ensure you meet the legal requirements to operate a vehicle. 

    It also assists in matching your application details with your credit history and other personal information, which helps in the overall assessment of your creditworthiness and whether you’re eligible for car finance.

    Proof of income and employment history

    How lenders assess your income and employment stability

    Lenders will evaluate your income and employment stability to determine your ability to repay a car loan. To be able to verify your income, they’ll typically require:

    📃 Recent payslips

    📃 Tax returns

    📃 Bank statements

    Lenders will look for stable, regular income as it indicates financial reliability, reducing their risk. They’ll also consider the length of time you’ve been with your current employer, as long-term employment suggests stability and a lower risk of job loss. This’ll assure them that you’re able to repay them too.

    The importance of employment history in securing finance

    Lenders not only look at your current employment status, but they’ll look at your employment history too. It’s a critical factor in obtaining car finance. 

    Lenders like a consistent work record with minimal job changes, as it reflects financial stability and reliability. A stable employment history, ideally with long tenures at previous jobs, demonstrates that you are less likely to experience sudden income disruptions. 

    This stability reassures lenders that you can maintain regular loan repayments, thereby improving your chances of being approved for car finance on favourable terms.

    Background checks for selling a financed car

    Like any car sale, if you’re selling a car on finance, you’ll have to prove you own the vehicle so you’re not defrauding your buyer.

    The documents you’ll need to provide include:

    Proof of address and address history

    Address history matters to lenders as it provides crucial insights into your stability and reliability as a borrower. This includes:

    🏠 Residency verification: You’ll need to be able to give three years’ proof of address within the UK. This helps confirm your identity and reduces the risk of fraudulent applications.

    🗓️ Stability assessment: Longer periods at the same address indicate stability, suggesting you are less likely to move frequently or experience disruptions that could affect your ability to repay loans.

    💷 Credit risk evaluation: Your address history is linked to your credit report, showing previous credit accounts and payment histories associated with each address. Lenders assess this data to gauge your creditworthiness and ability to manage financial obligations.

    📪 Contact information: Having accurate and up-to-date address information ensures lenders can reach you for essential communications regarding your loan application or account management.


    Why would I not get accepted for car finance?

    Several factors can lead to rejection for car finance, including:

    🚨 Poor credit history: Previous defaults or missed payments.

    🚨 Insufficient income: Leads to not being able to afford repayments.

    🚨 High debt levels: Existing debts that impact the ability to repay the loan.

    🚨 Limited employment stability: Short work tenures or irregular income.

    What credit score is needed for car finance in the UK?

    A good credit score of 700 or above improves your chances of approval for competitive car finance rates. However, specific requirements vary by lender. Some may accept lower scores with conditions, while others prioritise excellent credit for lower interest rates and better terms.

    Can I get car finance with a guarantor?

    Yes. You can often secure car finance with a guarantor. A guarantor provides assurance to lenders by agreeing to cover repayments if you default. This arrangement can increase your chances of approval, especially if you have limited credit history or a lower credit score.

    Should you sell your car?

    Want to learn more about the best ways to sell your car? Check out more of our guides here, covering everything you need to know about different finance schemes and what they mean for you as a car owner.